INTERMEDIATE ACCOUNTING VOLUME 2
7TH EDITION BEECHY COMPLETE
QUESTIONS AND ANSWERS GRADED A+
◉ The lathe is recorded at its present value of $20,548. No
calculation is required.
Accounting Rule: An asset acquired in exchange for a non-bearing
note if valued at the present value of the note
Answer: A company issues a five-year zero-interest-bearing note
for a new lathe it purchased for $25,000. The market rate of
interest at the time the note was issued is 4%. Assuming an
annual interest rate of 4% for five years is appropriate, the
present value of the principal is $25,000 × 0.82193 = $20,548.
Assuming an annual interest rate of 5% for 4 years is appropriate,
the present value of the principal is $25,000 × 0.82270 = $20,568.
What amount should be recorded for the cost of the lathe?
◉ Annually
Would only compound once per year and would yield the least
amount of interest
Answer: If you invest $50,000 to earn 8% interest, which
compounding approach would return the lowest amount after one
year?
◉ 24
,Compounding monthly for 2 years is 24 compounding periods
Answer: For an investment that earns 1% compounded monthly
for two years, how many compounding periods are there?
◉ 16 periods at 2%
Divide the 8% by 4 periods per year
Answer: Bella requires $240,000 in four years to purchase a new
home. She can invest cash today that would earn 8%,
compounded quarterly.
When determining how much money to deposit today, which
factors should Bella use from the Present Value Tables?
◉ Present Value of an Ordinary Annuity
Answer: A series of equal rents to be withdrawn at equal intervals
at the end of the period
◉ Eight periods and multiply by (1 + .10)
Answer: An accountant wishes to find the present value of an
annuity of $1 payable at the beginning of each period at 10% for
eight periods. The accountant has only one present value table
which shows the present value of an annuity of $1 payable at the
end of each period.
To compute the present value, which present value factor in the
10% column would the accountant would use?
◉ 19048
,The correct value to record equipment at is the present value of
the face on a non interest bearing note
Answer: Equipment is exchanged for a noninterest-bearing note.
Payment of $20,000 on the note is to be made in one year. The
market rate of notes of similar risk is 5%. Assuming an annual
interest rate of 5% is appropriate, the present value of the
principal is $20,000 × 0.95238 = $19,048. Assuming that a
semiannual interest rate of 2.5% is appropriate, the present value
of the principal is ($20,000/2) × 1.92742 = $19,274.
What is the cost that should be recorded with the purchase of this
equipment?
◉ 1,409,3
The payments are multiplied by the present value factor of an
ordinary annuity to arrive at the present value of the payments
that are received at the end of the year.
The payments occur at the end of a period so an ordinary annuity
is used
Answer: An individual recently won a lottery and has the
opportunity to receive $100,000 per year at the end of the year for
the next 25 years. Assuming an annual interest rate of 5% is
appropriate, the present value of 1 is 0.29530 × $100,000 =
$29,530, the present value of an ordinary annuity is 14.09394 ×
$100,000 = $1,409,394, and the present value of an annuity due is
14.79864 × $100,000 = $1,479,864.
What is the fair value of the lottery payments, according to the
Financial Accounting Standards Board (FASB)?
, ◉ Cash
Answer: Recourses that consists of coin currency money orders
certified checks cashier's checks personal checks and bank drafts
◉ 90,703
Answer: Company A sells land to Company B for $100,000.
Company A takes a note from Company B that is due in two years.
Assuming an annual interest rate of 5% is appropriate, the
implied annual interest is $100,000 × 0.05 = $5,000, and the
present value of the note is $100,000 × 0.90703 = $90,703. What
amount should Company A record for the sale?
◉ 495,870
Accounting Rule: A note received in exchange for property is
valued at its present value
Answer: Company A sells a parcel of land to Company B in
exchange for a note receivable. The terms of the note require
Company B to make a single payment of $600,000 in two years.
Using a 10% interest rate, the implied annual interest is $600,000
× 0.10 = $60,000, and the present value of the note is $600,000 ×
0.82645 = $495,870. What amount must Company A consider as
proceeds from the sale of the land in order to calculate gross
profit or gain/loss on the sale, and be in accordance with
generally accepted accounting principles (GAAP)?
◉ 7,843
7TH EDITION BEECHY COMPLETE
QUESTIONS AND ANSWERS GRADED A+
◉ The lathe is recorded at its present value of $20,548. No
calculation is required.
Accounting Rule: An asset acquired in exchange for a non-bearing
note if valued at the present value of the note
Answer: A company issues a five-year zero-interest-bearing note
for a new lathe it purchased for $25,000. The market rate of
interest at the time the note was issued is 4%. Assuming an
annual interest rate of 4% for five years is appropriate, the
present value of the principal is $25,000 × 0.82193 = $20,548.
Assuming an annual interest rate of 5% for 4 years is appropriate,
the present value of the principal is $25,000 × 0.82270 = $20,568.
What amount should be recorded for the cost of the lathe?
◉ Annually
Would only compound once per year and would yield the least
amount of interest
Answer: If you invest $50,000 to earn 8% interest, which
compounding approach would return the lowest amount after one
year?
◉ 24
,Compounding monthly for 2 years is 24 compounding periods
Answer: For an investment that earns 1% compounded monthly
for two years, how many compounding periods are there?
◉ 16 periods at 2%
Divide the 8% by 4 periods per year
Answer: Bella requires $240,000 in four years to purchase a new
home. She can invest cash today that would earn 8%,
compounded quarterly.
When determining how much money to deposit today, which
factors should Bella use from the Present Value Tables?
◉ Present Value of an Ordinary Annuity
Answer: A series of equal rents to be withdrawn at equal intervals
at the end of the period
◉ Eight periods and multiply by (1 + .10)
Answer: An accountant wishes to find the present value of an
annuity of $1 payable at the beginning of each period at 10% for
eight periods. The accountant has only one present value table
which shows the present value of an annuity of $1 payable at the
end of each period.
To compute the present value, which present value factor in the
10% column would the accountant would use?
◉ 19048
,The correct value to record equipment at is the present value of
the face on a non interest bearing note
Answer: Equipment is exchanged for a noninterest-bearing note.
Payment of $20,000 on the note is to be made in one year. The
market rate of notes of similar risk is 5%. Assuming an annual
interest rate of 5% is appropriate, the present value of the
principal is $20,000 × 0.95238 = $19,048. Assuming that a
semiannual interest rate of 2.5% is appropriate, the present value
of the principal is ($20,000/2) × 1.92742 = $19,274.
What is the cost that should be recorded with the purchase of this
equipment?
◉ 1,409,3
The payments are multiplied by the present value factor of an
ordinary annuity to arrive at the present value of the payments
that are received at the end of the year.
The payments occur at the end of a period so an ordinary annuity
is used
Answer: An individual recently won a lottery and has the
opportunity to receive $100,000 per year at the end of the year for
the next 25 years. Assuming an annual interest rate of 5% is
appropriate, the present value of 1 is 0.29530 × $100,000 =
$29,530, the present value of an ordinary annuity is 14.09394 ×
$100,000 = $1,409,394, and the present value of an annuity due is
14.79864 × $100,000 = $1,479,864.
What is the fair value of the lottery payments, according to the
Financial Accounting Standards Board (FASB)?
, ◉ Cash
Answer: Recourses that consists of coin currency money orders
certified checks cashier's checks personal checks and bank drafts
◉ 90,703
Answer: Company A sells land to Company B for $100,000.
Company A takes a note from Company B that is due in two years.
Assuming an annual interest rate of 5% is appropriate, the
implied annual interest is $100,000 × 0.05 = $5,000, and the
present value of the note is $100,000 × 0.90703 = $90,703. What
amount should Company A record for the sale?
◉ 495,870
Accounting Rule: A note received in exchange for property is
valued at its present value
Answer: Company A sells a parcel of land to Company B in
exchange for a note receivable. The terms of the note require
Company B to make a single payment of $600,000 in two years.
Using a 10% interest rate, the implied annual interest is $600,000
× 0.10 = $60,000, and the present value of the note is $600,000 ×
0.82645 = $495,870. What amount must Company A consider as
proceeds from the sale of the land in order to calculate gross
profit or gain/loss on the sale, and be in accordance with
generally accepted accounting principles (GAAP)?
◉ 7,843
